Productivity or protection?

By Joshua Nicholas

Should Sri Lankan labour laws focus on productivity or protection? This was the question addressed by a prestigious panel at the Postgraduate Institute of Management (PIM) last week.

The discussion, moderated by Postgraduate Institute of Management Senior Consultant, Dr. Wickreme Weerasooria, included a keynote address by Justice of the Supreme Court of Sri Lanka Suresh Chandra.

The discussion panel included Employers Federation of Ceylon Director General Ravi Peiris, Sri Lanka Nidahas Sevaka Sangamaya (SLNSS) Secretary General Leslie Devendra and Ceylon Chamber of Commerce’s Immediate Past President Dr. Anura Ekanayake.

In his keynote address, Chandra outlined labour law as pertaining to the basic relationships between employers and workers, workers and unions, unions and employers, and employers, unions and the state.

Role of the state

There are two main theories on the role of the state in labour law, Chandra explained, protective theory and economic rationalisation (libertarian) theory. While both theories aim for an equitable outcome between employer and employee, protective theory calls for state intervention to negate inequalities in bargaining power through legislation, while economic rationalisation seeks to foster private decision-making and market forces, with the state acting merely as a facilitator, without intervening directly. In Chandra’s view, however, “the state should act as a regulator, as well as a facilitator”.

“In Sri Lanka, labour law has played a protective role,” said Chandra, citing the ratification of International Labour Organization (ILO) core labour standards, and claiming that legislation has been enacted on the basis of Sri Lanka’s being a social welfare state.

Chandra explained that much of Sri Lanka’s protective labour laws were passed in the first half of the last century, including the 1935 Trade Unions Ordinance (that defined Trade Unions, and provided their rights and regulations), the 1934 Workmen’s Compensation Ordinance (that requires compensation payments to injured workers) and the Wages Board Ordinance of 1941 (that created a minimum wage).

Many of these laws are outdated and irrelevant in a country now heavily affected by globalisation and other current issues. “It may be necessary to consider whether these statutes need amendment to facilitate development,” said Chandra.

The way forward for Sri Lanka is to make advances in productivity Chandra claims. For this to happen, he believes “there needs to be a change in attitude”. Unions should recognise that they have responsibilities to the employer as well as the employees and employers must address the needs of labour, and give employees a greater sense of responsibility and opportunity to improve their skills.

“It is necessary to improve employee performance in order to increase productivity,” he said, noting that “improved productivity could benefit society with better quality products at competitive prices”.

Outdated legislation

Representing the employers, Peiris says Sri Lanka’s tightly-regulated labour system is the result of historical reasons. “We have had these laws enacted at a time when the labour movement was very strong, and if you look at most of these laws, they have been enacted between 1925 and 1960, when the governments of Sri Lanka relied on the trade unions and the working class to bring them into power,” he claimed.

Peiris described what he saw as an attitude among policy makers, of attempting to “protect the employee” and a misconception among workers that these laws actually protected their interests and secured their employment. Peiris criticised this view, claiming that “true security of employment cannot be obtained only through laws,” but through a basic relationship between employer and employee.

Peiris echoed much of Chandra’s criticism of outdated legislation, claiming that many statutes predate the 1980s, when globalisation began increasing and the economy was opened. He lamented that forms of employment common in other parts of the world, including fixed term employment, flexible hours and working from home have not been able to fully break into Sri Lanka as employers are “stifled with a set of regulation” enacted in the 1940s and 1950s.

The overwhelming burden of old legislation has caused many business owners to operate outside of the system, he claimed, creating an imbalance where those who follow the rules have to compete with those who do not.

“We have placed emphasis on law rather than establishing relations,” says Peiris, “our attitude has been, whenever there is a problem, enact a law”. He specifically cited the Industrial Disputes Act of 1950, which he claims created a conciliation arbitration process with “no mechanism to avoid a dispute”.

“It presupposes the existence of a dispute and then brings about the mechanism,” he said. Peiris claims that many disputes can be avoided if handled at the enterprise level. “If you look at the law, the legal system in relation to labour laws today, there is a lot to be done to make it more efficient,” stated Peiris, adding that “we need to have an enabling framework”.

Productivity with protection

Representing the unions, Devendra asks, “Why not productivity with protection?” He specifically cited Japan as an example of a country with both high levels of productivity as well as a system of highly protective labour laws.

A certain amount of protection is necessary, Devendra claimed, however, he asked: “Do we need the same protection given to workers in 1960? That is the real question.”

Devendra gave protection from arbitrary and unfair dismissals and the minimum wage as examples of real needs Sri Lankan workers face and Sri Lanka’s plethora of national holidays and an outdated and unworkable Labour Tribunal system as examples of labour laws that need attention.

“We need to revise laws, but we need to do it carefully depending on the need,” stated Devendra, “if laws have been ineffective, there must be other ways to address this problem.”

Relook required

Speaking as an outside observer, Ekanayake said: “Times have changed and there are several areas where a relook at the labour law system may be required.”

As an economist, Ekanayake cited the historically low unemployment rate of 5% to claim that Sri Lanka’s labour market is in an unprecedented position. “There is an enormous shortage of labour at every level in Sri Lanka. That has never been the case before,” he said, giving Sri Lanka’s rapid increases in GDP and economic activity and the demographic transition to a position of population growth at less than replacement level, as reasons.

“The labour/supply demand situation, what we are facing today, is something totally different. Therefore we need to look at labour laws in that light,” claimed Ekanayake.

“I would not for a moment say there should not be any protection,” says Ekanayake, however, “we need to have an enabling legal framework, where speedy solutions can be arrived at so that Sri Lanka will prosper”.

“There cannot be any dispute that employers have an enormous responsibility to have an open transparent dialogue with the workforce and build career citizenship, so that during times of hardship, employees will agree to voluntarily give up some of their perks, even salary, to tide over the difficult times,” Ekanayake stated.

Increase in productivity needed

Ekanayake also pressed on the subject of productivity. According to Ekanayake, Sri Lanka is falling short in the investment required to continue its rapid growth, and a sharp increase in productivity will be required to cover the gap. “From a little amount of investment, we need to produce much more” he claimed, “the biggest economic challenge Sri Lanka faces now is that of productivity and nothing else”.

While no definite conclusion was reached on the question of productivity or protection, three of the panellists emphasised on the need for increased productivity and every panellist condemned some of the protection labour legislation of the past.

Peiris and Ekanayake noted that modern Sri Lanka is facing unique challenges, including globalisation, rapid technology advancement, an unprecedented employment market and rapidly changing demographics.All of the panellists called for changes to labour legislation, to allow it to be more “fast moving” and equitable and for legislation to be enacted that created an “enabling” framework through which employers and employees may resolve their differences.     

 Pix by Upul Abayasekara